You may have heard that it’s easier to be an employee in Israel and that it’s hard to be a business owner. While there is some truth to that statement, it’s also true that running your own business, big or small, provides you with opportunities that a job won’t give you. Here’s what you need to know before you decide to open a business in Israel.
Benefits and obligations
Health insurance
Public health insurance is collected in two ways in Israel. You pay directly to your Kupat Cholim (HMO) for whichever plan you’ve chosen (basic, intermediate or advanced), and you also pay a health tax to Bituach Leumi (National Insurance). Both employees and business owners/freelancers pay this tax as part of their Bituach Leumi payments. In 2025, the amount was updated to 3.23% on up to 60% of the average salary of 7,522 NIS and 5.17% on the portion of the salary that is above 60% (up to a cap of 50,695 NIS salary).
Pension
Starting in 2017, self-employed individuals in Israel have been required to allocate a portion of their income to a pension savings plan. These pension contributions must be deposited by the end of the tax year for which the payments are made, although financial experts recommend depositing monthly. Pension funds for the self-employed include a savings component intended to provide an annuity after retirement. It is also possible to incorporate life insurance into the pension plan to cover cases of disability (loss of earning capacity) or death.
A self-employed person is entitled to tax benefits for independent contributions to a pension plan. In addition, they may choose to contribute amounts beyond the minimum required by law, thereby increasing future pension payments, while also enjoying further tax advantages.
The minimum contribution rates to a pension plan are as follows: for the portion of income up to half the national average annual salary (which is the first 79,896 NIS for the relevant tax year), 4.45% of income must be contributed. For the remaining income up to the full national average annual salary (up to 159,792 NIS per year), 12.55% must be contributed. There is no obligation (but it is possible) to contribute for the portion of income exceeding the national average salary (that is, on any shekel above 159,792 NIS annually).
These contribution percentages are calculated based on the individual’s income after deducting expenses allowed by law, but before deducting amounts contributed to a Keren Hishtalmut (study fund), pension insurance or another pension savings plan.
In case you’re wondering, employees pay 6% of their salaries to pension and their employers contribute at least another 12%, for a total of 18%.
Vacation and sick days
As a self-employed person, you don’t get legal vacation and sick days like an employee does. On the other hand, you have the flexibility to take time off when you decide you want it, without being concerned that your boss won’t approve it. However, many business owners fall into the same pitfall that employees with unlimited vacations do – feeling guilty about taking off and working much more than they would if they had a finite amount of days to use for vacation or illness.
Unemployment
Self-employed people are not eligible for unemployment benefits if they have to close their businesses.
Bituach Leumi
Business owners must pay Bituach Leumi to the amount of 4.47% for income up to 60% of the national average. This is as opposed to employees, who have a portion of their Bituach Leumi paid for by their employer.
As a business owner, if you neglect to pay Bituach Leumi in a timely manner, your benefits may be negatively affected. (If an employer is negligent and doesn’t pay Bituach Leumi for his employee, the employee’s rights are not affected.)
Bureaucracy
Owning a business involves opening files at the VAT office, Bituach Leumi and Mas Hachnasa (income tax). There are laws regarding reporting for each type of business – Osek Patur, Osek Murshe and Osek Zair. At some point after opening your business, you may be asked to fill out a declaration of assets (Hatzharat Hon) and update it every few years. Due to the complexity of compliance with the various laws, many business owners hire an accountant or tax advisor to assist them in dealing with Israeli bureaucracy.
Social Security (if you’re an American citizen)
If you’re an American citizen, you are required to pay 15% of your income to Social Security as a self-employed person. In some cases, this is worthwhile, since when you reach 40 quarters, you are eligible for payments once you retire. But for many dual citizens, the burden is just too great – especially on top of income tax and Bituach Leumi. Workarounds include opening your own Ba’am company or becoming an employee of an Employer of Record service.
Israeli business culture
Chances are that the business culture in Israel is quite different from what you’re used to in your country of origin. Communication is often less formal, with business being done via WhatsApp and social media, meetings taking place in coffee shops and a blurry line between business and personal lives. Expect haggling on the one hand and extended payment deadlines on the other hand. On the formal side, you’ll need to take your invoicing, production of receipts and financial recording very seriously.
To be or not to be a business owner?
This is a question only you can answer. If you don’t mind dealing with bureaucracy, if being your own boss is important to you or if you have a dream you can only make happen by opening a business, you can certainly succeed and thrive in Israel. Get professional advice on the best way to structure your business and work with people who will help you scale your business and maintain your work-life balance. Email info@route38.co.il to book a business consultation and get you started.
